This invention relates to payment of online purchases, and more particularly to a system that executes such payments in a efficient and cost-effective manner so as to make it economical to sell and purchase online products and services priced as low as just a few pennies per item.
The major issues that confront online purchasing systems are fraud, security, execution speed, and transaction costs. The last of these issues, transaction costs, is of particular concern to Internet vendors because of the nature of products typically sold over the Internet, and price expectations of their customers. Many of the products and services provided over the Internet are information-based, with virtually zero incremental cost of goods and small cost of delivery. As such, customers have expectations of low prices for such goods and services. Such expectations, coupled with the cost and inconvenience of executing online transactions have contributed to the commonly used practice of companies giving away software and information for free.
Existing electronic payment methods are either costly, slow to consummate, or both. For example, debit cards typically costs $0.50 per transaction. (Banks also impose dollar limits on the amount that can be debited.) Electronic check payments are only slightly better. Electronic bill payment systems typically charge users around $0.20 per transaction, and can take several days to deliver payment to the Internet-based merchant. “Electronic Cash” systems have been developed to support on-line transactions. However such e-cash systems have yet to be adopted on a broad scale, and their cost-effectiveness when used exclusively for low-value items has yet to be established.
The “free information” model (paid for by advertising) actually works to the disadvantage of Internet users. Since vendors cannot economically collect the small revenue associated with each transaction, there is little financial incentive for small-transaction businesses to emerge on the Internet, thereby limiting the richness of products and resources available to users. Furthermore, many free Web sites that do exist tend to be overloaded, resulting in long waits times, because the Web site owners cannot afford to invest in infrastructure that would improve responsiveness.
A low-cost online purchasing system can stimulate more diversity and competition in Internet-based services. Such products and services might include, for example, drawings, maps, greeting cards, publications, recipes, search services, advice services, sales alerts, stock alerts, whether and traffic alerts, and buying services. Thus a purchasing system that could economically execute transactions of arbitrary size would benefit both customers and vendors, and further stimulate e-commerce.
A new paradigm is also needed for the way financial institutions are reimbursed for supporting the transactions of online vendors. Specifically, instead of charging online vendors on a per-transaction basis, banks may charge online vendors for maintaining accounts. Alternatively, banks may charge online vendors based on the dollar volume of transactions processed by the bank on behalf of the vendor. Still another model is for banks to serve as an Internet portal through which buyers are authenticated for making purchases from online vendors, with banks charging online vendors for access through the portal. This model is analogous to mall operators charging shops in the mall rental space and security fees. It is also clear that some combination of the above models is also a possibility. The present invention supports all of the business models described above.